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Frequency-domain analysis of debt service in a macro-finance model for the euro area

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  • Renne, J-P.

Abstract

This paper illustrates how a parsimonious macro-finance model can be exploited to investigate the frequency-domain properties of debt service implied by various financing srategies. This orginal approach is valuable to public debt managers seeking to assess the fiscal-hedging properties of the financing strategies they implement. The model, inspired by Rudebusch and Wu (2008), is estimated on euro-area data over the period 1999-2009. At business-cycle frequencies, the variance of interest payments is lower when nominal long-term bonds are issued. From a budget-smoothing perspective, debt service variability plays a major role, but pro- or counter-cyclicality of debt service also matters. In this respect, the results suggest that while interest payments associated with medium- to long-term nominal bonds are negatively correlated with real activity, those associated with inflation-linked bonds and short-term nominal bonds tend to be pro-cyclical.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 261.

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Length: 34 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:bfr:banfra:261

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Related research

Keywords: Macro-finance model ; spectral analysis ; term-structure of interest rates ; public debt management;

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References

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Cited by:
  1. Lavallée, E. & Vicard, V., 2010. "National borders matter... where one draws the lines too," Working papers 272, Banque de France.

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